Devon Energy said that its board of directors has approved the company’s plans to separate its Canadian heavy oil and Barnett Shale assets in a move to transform into a pure play US oil company.
A potential sale or spin-off are among the multiple options to be explored by Devon Energy to separate the two assets from its overall portfolio.
The Oklahoma-based company said that the separation will enable it to focus on its high-return US oil assets and is in line with a previously revealed long-term strategic plan.
It expects to wrap up the separation of the Canadian and Barnett Shale assets by the end of 2019 and plans to use the resulting proceeds to sustain target debt levels of 1.0-to-1.5 times EBITDA and to continue its share repurchase activity.
In the Barnett Shale, located in the Fort Worth Basin of North Texas, the company, which has drilled more than 5,000 wells, produced 105 MBOED in 2018.
In Canada, the company has heavy oil assets in Eastern Alberta. A bulk of its Canadian production comes from its thermal heavy oil projects at Jackfish.
The company also holds a significant cold-flow heavy oil position in the greater Lloydminster area.
Devon Energy, which will narrow its focus as a US oil business, has revealed its intentions to take steps to generate at least $780m in sustainable annual cost savings by 2021.
The cost-reduction plan covers various actions to target more efficient field-level operations and improvements in drilling and completion costs apart from better aligning personnel with the future business, said the company.
It will focus on its operations in Delaware, STACK, Powder River and Eagle Ford which put together had a total production averaging 296,000 oil-equivalent barrels (Boe) per day in the fourth quarter of 2018.
Devon Energy president and CEO Dave Hager said: “New Devon will emerge with a highly focused U.S. asset portfolio and has the ability to substantially increase returns and profitability as we aggressively align our cost structure to expand margins with this top-tier oil business.
“The New Devon will be able to grow oil volumes at a mid-teens rate while generating free cash flow at pricing above $46 per barrel.”
As part of simplifying its asset portfolio and to reduce its debt by 40%, Devon Energy in 2018 sold its stakes in EnLink Midstream Partners (ENLK) and EnLink Midstream (ENLC) for $3.1bn to Global Infrastructure Partners.